Unpublished Disposition, 899 F.2d 18 (9th Cir. 1986)

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US Court of Appeals for the Ninth Circuit - 899 F.2d 18 (9th Cir. 1986)

Dennis T. ARMSTRONG and Nina Armstrong, Plaintiffs-Appellants,v.ALLSTATE INSURANCE COMPANY and Small BusinessAdministration, Defendants-Appellees.

No. 89-15180.

United States Court of Appeals, Ninth Circuit.

Submitted March 16, 1990.* Decided March 21, 1990.

Before CHAMBERS, WIGGINS and NOONAN, Circuit Judges.


Dennis T. Armstrong and Nina Armstrong appeal from a judgment of the district court in favor of the Small Business Administration (SBA). We affirm the judgment of the district court.


On August 10, 1982 the SBA provided the Armstrongs with a disaster loan of $50,000 for damages caused by a storm. The loan was accompanied by an agreement setting out its terms and secured by a deed of trust on the Armstrongs' residence and by other collateral, including "proceeds of policies of insurance" on the house.

On July 23, 1984 the Armstrongs sued Allstate Insurance Co. to enforce the homeowner's insurance policy with respect to the storm damages in an amount exceeding $30,000. The suit stated claims for breach of the insurance contract, breach of the duty of fair dealing and good faith, breach of fiduciary duty, and breach of statutory duty by the insurer. Three months later the insurer settled the suits by paying $60,000 in the form of checks naming the Armstrongs and the SBA among others as joint payees. Each check bore the legend, "any and all claims arising from your retaining wall loss."

The SBA demanded that the money be applied to satisfy the SBA loan. The Armstrongs refused. The SBA did permit $30,000 in attorney fees and $3,800 in costs to be deducted from the $60,000, leaving the balance of $26,200 in a trust account which became the object of this action.

Meanwhile, in 1985 the Armstrongs defaulted on a promissory note in favor of a lender senior to the SBA. On January 27, 1986 Pacific Loan Management Corporation conducted a foreclosure sale of the residence for the benefit of one of the senior creditors, holding a note in the amount of $86,000. The SBA tendered the highest bid--$137,514. After paying encumbrances, costs, fees, and expenses there remained a surplus in the sum of $31,236.65. After litigation, this sum less attorney's fees of $6,426.00 was awarded to the SBA, although the money is still within the control of the state court.

It is the contention of the Armstrongs that the SBA, after acquiring the residence and the partial payment of $31,236.65, is seeking a deficiency judgment in attempting to recover the insurance settlement proceeds of $26,200.


The Armstrongs have focused on California law on deficiency judgment. This law is not relevant to the case at hand. The situation is ruled by the contractual agreement between the SBA and the Armstrongs:

First, by this contract the Armstrongs agreed that if they received compensation for the disaster from other sources including the proceeds of an insurance policy these proceeds would be applied to the loan. By the contract itself the proceeds were to be available "to the extent that SBA in its sole discretion determines them to be a duplication of benefits." The proceeds were assigned by the agreement. The proceeds, in short, were another form of collateral for the SBA loan.

Second, California deficiency law does not apply where a secured creditor is realizing on collateral that is additional to property on which the creditor has foreclosed. Redingler v. Imperial Sav. & Loan Ass'n, 47 Cal. App. 3d 48, 50, 120 Cal. Rptr. 575, 576 (1975); Hatch v. Security-First Nat'l Bank, 19 C.2d 254, 120 P.2d 869 (1942).

Therefore, there is no barrier to the SBA acquiring the proceeds of the insurance assigned to it.



The panel unanimously finds this case suitable for decision without oral argument. Fed. R. App. P. 34(a); Circuit Rule 34-4


This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3